Page 12 - ISQ UK_October 2021
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Emerging Markets: An Uneven Recovery,

       but Strong Long-Term Potential

        Tracey Manzi, CFA, Senior Investment Strategist, Investment Strategy

        The global economy has recovered strongly from the pan-  FACTORS SHAPING OUR OUTLOOK
        demic, however, growth has been uneven. Advanced    GROWTH SETBACK IS TEMPORARY
        economies have been in the driver’s seat throughout the   Emerging markets have been a dominate force in the global
        recovery, as access to vaccines and acceptance rates have   economy over the last twenty years. In 2001, emerging markets
        accelerated the reopening process in their respective econo-  accounted for over 40% of global growth. Today, they represent
        mies. Emerging markets have faced considerable challenges   nearly 58% of the global economy. The International Mone-
                                                            tary Fund expects their share to rise to over 60% by 2025 as the
        as the lingering virus and slower than anticipated vaccine
                                                            urbanisation of their economies and growth of the middle class
        rollouts have created headwinds for their recoveries.   continues. While pandemic-related  challenges are  temporarily
                                                            restraining growth relative to developed markets, we do not
        These diverging paths have led to a narrowing in the growth pre-  expect this trend to continue. With vaccination rates improving
        mium between developed and emerging markets and caused the   and tentative signs that COVID cases are stabilising, the near-
        performance of emerging market equities to fall further behind   term weakness in emerging market growth may not be as soft
        their developed peers. While the recent setback is disappointing,   as the market fears. This should tilt the growth differential back
        we still believe that emerging markets offer strong long-term   in favour of emerging markets, with another meaningful boost
        potential and diversification benefits in a balanced portfolio.     when the impact of the sizeable fiscal and monetary stimulus in
        Below, we outline the factors that are shaping our view and some   developed markets starts to fade.
        issues to watch in the current macro environment.

          We still believe that emerging markets offer
          strong long-term potential and diversification
          benefits in a balanced portfolio.

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